The European Court of Justice (ECJ) has ruled that employers must include commission in holiday pay.
The case of Locke v British Gas involved a sales consultant for the energy company who earned an average of 60% of his salary from commission payments. When he took annual leave in December 2011, Mr Locke was only paid his basic salary as part of his annual leave and so made a claim to the Employment Tribunal for the outstanding holiday pay he believed he was owed.
Commission should be included in holiday pay
The Advocate General of the European Court of Justice ruled that commission should be included in holiday pay. He deemed that the proper levels of holiday pay were required under the Working Time Directive in order for workers to enjoy their leave and not face the prospect of financial hardship.
Also, because Mr Locke’s job as a sales consultant meant that his role was intrinsically linked to the earning of commission, The Advocate General concluded that the commission should be included.
How will this affect employers?
It’s anticipated that this will have a significant impact for employers because employees earning commission as part of their salary will now be entitled to have this reflected in their holiday pay. However, employers will not have to pay commission on holiday entitlements which exceed the minimum level of annual leave set out in the Working Time Directive.
Our Head of Employment Law at Howells Solicitors, said:
“This is going to provide employers with a major headache especially those in sectors where commissions form a significant part of their reward strategy. Complicated holiday pay calculations will have to be made and some employees might choose to take their holidays after particularly lucrative periods in which they have earned large commissions.”
Although UK tribunals are yet to interpret the case and how it sits with UK law on holiday pay, it’s expected that this will be addressed sooner rather than later and as such, employers are advised to consider their approach urgently.
For more information about employment law, talk to experienced solicitors at Howells today.
by Tristan Lewis
